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Beheading hostages is the grisly signature of Abu Sayyaf, an Islamist extremist group with a strong criminal bent operating in the southern Philippines.

On June 11, two days after Congress proclaimed Benigno "Noynoy" Aquino III the winner of a presidential election, three Christian loggers working in a forest on the far southern island of Basilan fatally crossed paths with a group of Abu Sayyaf gunmen. They were abducted and beheaded hours later. As there was no ransom demand, authorities believe the killings were in retaliation for military operations against the terror group across Basilan. Only a week earlier in a nearby municipality, Abu Sayyaf militants executed three kidnap victims whose families could not pay the ransom. And in April the same faction, led by Puruji Indama, who gained notoriety for decapitating the corpses of 14 Philippine marines ambushed on Basilan in 2007, was blamed for bomb attacks in Isabela City, the island's provincial capital, in which over a dozen people were killed. (Read "The Next Aquino: Can Noynoy Save The Philippines?")

Such depredations are not uncommon in Abu Sayyaf's stomping grounds on a chain of Muslim-dominated islands in the Sulu Sea, but this month's killings were a gruesome reminder of the security challenges that the new administration faces. As well as countering Abu Sayyaf's brand of homemade terrorism, Aquino will oversee newly restarted peace talks with the Moro Islamic Liberation Front (MILF), the country's largest Muslim separatist rebel group, to end a long-running separatist insurgency in the South that has claimed over 120,000 lives.

Aquino, who takes the oath of office on June 30, has yet to present in any detail his administration's road map for tackling terrorism and insurgency. But security analysts anticipate more emphasis on economic-development initiatives in conflict-affected areas to undermine local support for militant groups, as well as pushing the military's campaign against the terror group. "With the growing recognition from the military establishment that countering terrorism needs to go beyond the use of military force, Aquino's presidency will likely be expected to pay more attention to soft approaches," says Rommel Banlaoi, head of the Philippine Institute for Peace, Violence and Terrorism Research. As the head of the armed forces' civil-relations service told reporters last week, despite gains in the military's war on terror  like the recent capture of Kaiser Said Usman, an Abu Sayyaf commander on Basilan  military solutions alone cannot eradicate the group. There is "still a need to re-examine government policy in annihilating the group," said Brigadier General Francisco Cruz. (See pictures of life inside the Philippines military.)

The once al-Qaedalinked Abu Sayyaf is blamed for the country's worst terrorist attacks  including the 2004 bombing of a ferry near Manila port that killed 116 people  as well as a revolving door of ransom kidnappings of Filipinos and foreigners. The group, to be sure, is no longer in its prime. After 9/11, U.S. troops, many with specialist training, were sent to the southern Philippines to support in noncombat roles the local counterterrorism effort, and several hundred U.S. special forces continue to be rotated there. The Philippine military estimates the now faction-split Abu Sayyaf's strength at around 350 members, well below its peak of over 1,000 a decade ago.

But the escalated attacks on Basilan are a sharp reminder that Abu Sayyaf is far from a spent force. "Despite the deaths of several commanders and multiple Philippine military offensives, this latest spate of violence and kidnapping in Basilan is a testament to the group's resiliency and brutality," says Pete Troilo, a security analyst with risk consultants Pacific Strategies and Assessments. Indeed, the militants continue to find willing fighters among disaffected young Muslims hoping to cash in on ransom kidnappings. "The leaders are generally ideologues, but the followers are loot seekers," Colonel Daniel Lucero, assistant chief of staff for the Philippine army's civil-military operations told a recent gathering of counterterrorism experts in Manila. In its recruitment drive, says Lucero, families are paid around $650, or about a year's income for a casual laborer there, to "release" their sons. As Troilo puts it, "All too often Abu Sayyaf is the only local employer."

Most of the Philippines' poorest provinces are in Muslim-majority regions on the main southern island of Mindanao and the Sulu archipelago, a legacy of economic neglect, weak governance and the lingering insurgency. On Basilan's smaller neighboring island of Jolo, a hotbed of Islamist extremism and lawlessness, a 2003 government figure put the life expectancy there at just 52, compared to the national average of 70.

Only a few years ago, Basilan, a six-hour ferry trip from Mindanao's port city of Zamboanga, enjoyed a considerable measure of peace. The Philippine-U.S. cooperation adopted an aggressive counterterrorism strategy there of combining military hard power with the soft power of humanitarian assistance and delivering basic services to woo locals in areas infested by militants. Crucially, that effort had the cooperation of the island's most powerful politician Wahab Akbar, a Syria-trained Islamic teacher, who is said to have influenced the formation of Abu Sayyaf in the early 1990s as a fundamentalist group fighting for Muslim self-rule in this mostly Christian country. As one retired army general puts it, "You can't govern there [Basilan] unless you have a reputation." But Akbar's death in a bomb blast in November 2007, which some say has lost momentum in civil-military operations, created a vacuum. According to Banlaoi, a quarter of Basilan's 187 villages are now affected by Abu Sayyaf.

It is, of course, too early to tell whether the Aquino administration will succeed in promoting a culture of peace in this deeply troubled corner of the Philippines. Troilo points out that Aquino already faces a "cumbersome multitude of policy priorities." But concluding a peace agreement with the MILF, would be a huge support to that effort. And not least because it should give the MILF's generally moderate leadership more control over its hard-line members with links to Abu Sayyaf and foreign jihadists. But as Aquino's newly appointed peace adviser, Teresita Quintos-Deles, told reporters after accepting the post, "It's going to be a very challenging area."